Earlier this week Corporate Knights (CK) announced its Global 100 list of the world’s most sustainable corporations for 2013. This year the first company on the list, and hence, perhaps, the most sustainable company in the world, was Umicore, the Belgium-based materials technology and recycling company.
Every time a new sustainability ranking is released, questions are raised about the value of these rankings and what we can really learn from them. This year’s Global 100 is no different. While one obvious question is whether Umicore is really the most sustainable company in the world, other interesting questions arise, such as if it is possible to compare companies from different sectors like the Global 100 does, can we learn anything from this ranking on the current state of sustainability in business and who reads it anyway.
Today we will answer all of these questions and some more. Here we go.
How is the Global 100 ranking conducted?
This year CK looked at all companies that had a market capitalization in excess of $US 2 ibllion as of Oct 1, 2012. Then, “four screens are employed based on companies’ sustainability disclosure practices, financial health, product category and financial sanctions. Companies that pass all four screens constitute the 2013 Global 100 Shortlist.”
In the next step, companies in the shortlist are assessed against a list of 12 key performance indicators (KPIs), including energy and water productivity, innovation capacity, CEO-to-employee pay ratio, percentage tax paid and leadership diversity. For each KPI, companies are ranked and then percent-ranked against all same-industry group peers within the ranking coverage universe. Finally, the Global 100 is comprised of the highest ranking companies in the shortlist subject to each industry group’s cap.
Does the Global 100 compare apples to oranges?
This is a common complaint lobbed at many of the rankings that try to compare companies from different sectors. While some would argue that it is impossible to compare a bank to a retailer or hi-tech company to an oil company when it comes to sustainability, Corporate Knights believes it can be done. “While companies from all geographies are eligible for consideration in the Global 100, companies are only evaluated against their same-industry group peers. Banks are assessed against other banks, and mining companies are assessed against other mining companies,” the company explains.
What are the pros and cons of such comparison?
An important advantage is that you have just one master list instead of multiple sector-specific lists like those created by Best Corporate Citizens’ lists of CR Magazine, which prides itself for comparing apples to apples.
The main disadvantage of such a comparison is that, because it is based on the ‘best in class’ principle, it is biased towards companies that do relatively well in a sector where many others lag behind. As Doug Morrow, VP of research at Corporate Knights Capital told Marc Gunther: “In some industries, the industry mean is going to be lower than others. If you happen to be a company with outstanding performance and your peers are way behind, you’re going to come out like a star.”
What does the Global 100 tell us on the current state of sustainable business?
Not much. To me this is the biggest problem with this ranking as well as some others. While the Global 100 tells us for example that Umicore (#1 on the list) is more sustainable than Intel (#14), or that among financial companies, Prudential (#61) is better than Banco do Brasil (#100), we have no idea if what they’re doing is good enough. In a way, it is like providing you with the results of a 100-meter race without telling you what the 100-meter world record is – how can you tell whether the runners did well or not?
What we’re missing here is the sort of objective benchmark that Deloitte offers with its Zero Impact Growth Monitor. Deloitte also compares companies from different sectors, but by comparing companies’ performance to a common benchmark that tries to define what a ‘good performance’ is rather than to one another it achieves more meaningful results in my opinion. Just look at the ranking of Unilever in both cases (#1 on Deloitte, #82 on Global 100) and you’ll see what I’m talking about.
What’s the most valuable part of the Global 100?
The raw data (look for the link above the list to download it). With everything said, the Global 100 includes good KPIs and you can learn a lot from them, finding for example which company pays the highest percentage of taxes comparing to its EBITDA (Statoil of Norway – 52.68 percent) or the company with the lowest CEO-average employee pay (City Developments Ltd of Singapore – 5 times).
Who reads it anyway?
According to ‘Rate the Raters’, the excellent GlobeScan / SustainAbility survey, 45 percent of sustainability professionals find ratings/rankings a trustworthy resource for judging a company’s sustainable performance (second only to NGOs with 50 percent) More specifically, 42 percent of them are familiar with the Global 100 and 34 percent find it credible, comparing to 21 percent that find it not credible.
Oh, and is Umicore really the most sustainable company in the world?
This article was originally published on Triple Pundit
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons the New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.